After banging around a few RPG-related websites, especially Ars Ludi, I got a pretty good idea about how Sandbox campaigns are supposed to work, and how my inadvertent sandbox campaign (The Dragon’s Legacy) had some rough edges to it that ultimately didn’t shape up like I thought they would.
First, the basic concept is a safe indoors, and a scary outdoors. Or to put it another way, the “home base” should be relatively drama/conflict/encounter free, while the outside should be chock-full of danger. The arch-typical model is the D&D classic module The Keep on the Borderlands, where the Keep is detailed, but not really where the PC’s adventure. In my proto-Sandbox campaign, I tried actually having stories going on in the city, stories that never really took off and really seemed to be more of a distraction.
Second, the PC’s should be the only heroes. Nobody is going to defend Law and Goodness, kill monsters, and take their stuff except for them. This has been always a bit of a confusing bit of narrative for campaigns set in pre-made campaign worlds with loads of uber-powerful NPC’s that were probably PC’s in the playtesting era. Why don’t they, with their inexhaustible magical power and weaponry, deal with the problems of the world instead of Joe PC Cleric? Or at a minimum, supply the PC’s with handy magical items or let them freely copy from their spellbooks? I’m not making this up–all questions asked in my previous campaign which was loaded with powerful NPC’s.
Again, looking at The Keep on the Borderlands, the NPC ruler of the keep was fairly passive regarding the Caves of Chaos, really. In fact, his only real goal was apparently to maintain the security of the keep. He’s also aloof enough to not put with panhandling PC’s. As I mentioned, this does appear to be the best modus operandi for a sandbox campaign. The trouble for me, then, is how do I do my own sandbox campaign that isn’t just a retread of KotB? How do I not just have have another walled city with a fairly vanilla NPC leader (and loads of literally faceless NPC henchmen). If I were to have the community led by a powerful wizard or cleric, I start to run into that “Daddy Warbucks” scenario where the PC’s will figure that he or she will be good for a few civic-minded raise deads. I can’t imagine a “safe” community being led by a thief, and an elderly halfling being in charge of town will probably smack a bit too much of Bilbo Baggins.
Strange Vistas 
One of the angles you can play, with the PCs as the only heroes, is that it’s not that there are no other heroes, but that the NPC heroes are all out on other events of daring do. This is particular so with low-level parties, as one can provide occasional news and rumors of the great warriors as they tackle monsters on the border or engage in a war somewhere, while the PCs serve as the Home Guard, so to speak, taking care of dangers nearer to home and not significant enough to draw the ‘great names’, even as they seek to build a name for themselves.
Forgot to say, I think the idea of a rich merchant town leader who’s hiring help is an excellent choice. If you have any players of questionable in-character honesty, be sure to consider what would happen if they decided to raid some of the goods of the one they’re supposed to be protecting, of course!